Discussion:403(b) Plan Employee Contributions - NonCompliance Disclosure
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| Revision as of 23:12, 24 June 2009 Natalie (Talk | contribs) (I would agree wi) ← Previous diff |
Revision as of 01:24, 25 June 2009 Mikelim (Talk | contribs) (FAS 5 was the on) Next diff → |
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| {{ForumReplyPost|UserID=Natalie|Date=June 24, 2009|Text=I would agree with FAS 5 Jerry. }} | {{ForumReplyPost|UserID=Natalie|Date=June 24, 2009|Text=I would agree with FAS 5 Jerry. }} | ||
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| + | {{ForumReplyPost|UserID=Mikelim|Date=25 June 2009|Text=FAS 5 was the only authoritative guidance that I was leaning on, because the closest thing that I have had with this is non-compliance with loan covenants. | ||
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| + | If that is the guidance, than at the time of the financial statements, the contingency or liability cannot be considered probable, nor cannot be estimated. | ||
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| + | Looks like I am going to have to come up with a creative way of wording this. | ||
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| + | Thank you for all of your help!}} | ||
Revision as of 01:24, 25 June 2009
Discussion Forum Index --> Accounting Questions --> 403(b) Plan Employee Contributions - NonCompliance Disclosure
| 23 June 2009 | |
| I have a client that I am drafting an audit report for; through my procedures, I discovered that they were in violation of DOL regulations regarding the deposit of employee conributions to the Company 403(b) plan. The issue is that, per ERISA, they are supposed to deposit the contributions by the 15th of the following month, or as soon as reasonably practical.
They did not do this; because of cash flow issues, they withheld the contributions, but did not deposit them until after year end. They are technically out of compliance, but they subsequently rectified it after year end. They did not receive any notices about plan violations. I have been searching my disclosure libraries for something that would cover this, but have not found anything on this specific topic. I was just going to disclose that they were out of compliance, but Management had subsequently rectified this. Anybody have a similar situation? | |
| June 24, 2009 | |
| My understanding is that the employee portion of contributions is required to be deposited as soon as the amounts are identifiable but no later than seven business days after they were withheld. This is the safe harbor rule. It is actually recommended deposits of the employee portion be deposited as soon as possible.
It sounds like you notified management of this issue. That is the first step. I am not sure it needs to be disclosed in the statements, however. Perhaps someone else can answer that. | |
| June 24, 2009 | |
| It seems to me no disclosure is required unless you think that there is a possibility your client will incur penalties and those penalties will be material with respect to the financial statements. | |
| 24 June 2009 | |
| I was leaning toward disclosure, as it was an issue of non-compliance, so materiality wasn't the main issue.
I was more worried about the possibility of the violation causing the plan to be disqualified by the IRS/DOL. However, given that they rectified it after year end, and they have not received any other notices and I have no cause to believe they will receive any, perhaps no disclosure is necessary. | |
| 24 June 2009 | |
| Those notices can come months or even years later. Just because you didn't get one doesn't mean one isn't coming. Furthermore, the fact that the violation was caused by cash flow issues raises all sorts of red flags that I, as a financial statement reader, would be concerned with. I would disclose, and then note that the funds were subsequently deposited, but wouldn't call it "rectified," because the DOL may have something to say about that. They can be pretty draconian about fixing things. | |
| June 24, 2009 | |
| Jerry, would you then say that generally you would disclose noncompliance issues? | |
| 24 June 2009 | |
| I've had to disclose noncompliance with things like covenants, even when the noncompliance was cured before the end of the reporting period. We've had to say things like "the Company was not in compliance with certain covenants during the quarter ended December 31, 20xx, and as a result, the Company signed an amendment with the lending institution waiving the noncompliance for the period in question." In our case, the noncompliance caused a potential material liability. Even though it was cured before the end of the period, we disclosed it anyway. The potential liabiltiy (not sure it is material) appears to still exist for Michael's client at period end. The cure was a subsequent event.
Not exactly the same thing, but IDK...it kinda feels the same to me. | |
| 24 June 2009 | |
| Hmmm. Thought about this some more. I think, assuming this is material, FAS 5 may be the best course of action. In that case, FAS 5 says "Disclosure is not required of a loss contingency involving an unasserted claim or assessment when there has been no manifestation by a potential claimant of an awareness of a possible claim or assessment unless it is considered probable that a claim will be asserted and there is a reasonable possibility that the outcome will be unfavorable."
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| 25 June 2009 | |
| FAS 5 was the only authoritative guidance that I was leaning on, because the closest thing that I have had with this is non-compliance with loan covenants.
If that is the guidance, than at the time of the financial statements, the contingency or liability cannot be considered probable, nor cannot be estimated. Looks like I am going to have to come up with a creative way of wording this. Thank you for all of your help! | |
